This was the main headline in trading yesterday: US August ISM services 54.5 vs 52.5 expected
And that is shifting the price in the Fed outlook once more. At this point, markets are extremely sensitive to US data but there has been a developing trend in the last one month. Here's a look at the Fed funds futures curve:
There have been one or two pushes in the other direction but as you can see, the long-end of the curve has shifted much higher compared to where we were a month ago.
In fact, the pricing for the first rate cut at the start of August was in March 2024 initially but now that has been pushed back to June 2024. That is a sign that markets are more confident that the Fed can stick a soft landing and hold rates higher for longer as they intend to.
If that can continues to be kicked down the road, it will implicitly keep a bid in the dollar. And if that is accompanied by higher yields, there is likely more pain for equities to come as the long awaited Fed pivot may yet turn out to be a project in hiatus until the economy turns really sour or inflation returns back to the 2% target.